2 Tech Buys for March: Baidu.com, Inc. (ADR) (BIDU), Google Inc (GOOG)

And as Morningstar analyst Dan Su points out, slowing average ad spending is inevitable, since Baidu’s impressive double-digit ad spending growth rates have been primarily driven by a limited number of very large clients. As these large clients max out their advertising spending, Baidu’s growing advertising client base should offset declines in ad spending growth rates to drive Baidu’s future revenue growth. And fortunately for investors, its advertising client base growth actually increased, from 13% year-over-year growth in the year-ago quarter to 31% growth in Q4 2012.

Yes, there is Qihoo 360 Technology Co Ltd (NYSE:QIHU) — a disruptive Chinese web browser and anti-virus software company. Its search engine, launched in August 2012, already boasts about 10% market share. The competitor’s easy entrance into search is undoubtedly unsettling with Baidu — and especially Baidu investors.

In fact, Morningstar’s Su names Qihoo as one of the primary reasons for Baidu’s higher traffic acquisition costs, as Baidu buys more PC search traffic from partners. But comparing Qihoo’s $45 million in free cash flow over the trailing 12 months to Baidu’s $10.3 billion adds some perspective to Baidu’s outsized bargaining power with partners.

Thanks to the recent sell-off, Baidu is available at just 19 times earnings, despite an increase in both revenue and EPS of 41% and 36%, respectively, from the year-ago quarter. Furthermore, most analysts remain bullish on the stock, with 15 of 22 Baidu analysts reported by Motley Fool CAPS still giving the stock an outperform rating.

Online search is here to stay
There is no doubt that online search will continue to play an increasing role in our everyday lives. Google and Baidu are, far and away, the clear leaders in online search in their respective markets. Why not pick up one of these great companies today while they are both available at reasonable prices despite their bullish prospects for growth?

The article 2 Tech Buys for March originally appeared on Fool.com and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple, Baidu, and Google. The Motley Fool owns shares of Apple, Baidu, and Google.

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